Thursday, March 23, 2006

America bombing Dubai's Doncasters

Back in December 2005, Dubai International Capital, a subsidiary of Dubai Holding, the investment vehicle that owns most of everything that's anything in Dubai, signed an agreement to buy Doncaster Group, an engineering firm, from Royal Bank of Scotland Equity Finance for AED4.5bn.

Doncasters, according to its website, "manufactures precision components and assemblies for the aerospace, industrial gas turbines, specialist automotive, medical orthopaedic and petrochemical markets."

So why the Doncasters deal? Dubai seems keen to move up the added value food chain, particularly in lucrative, knowledge-intensive industries like biotechnology and IT. February saw the launch of Dubai Aerospace, a company that will, alongside aircraft leasing and airport management operations, is intended to be a major player in aerospace maintenance, manufacturing and research.

Doncaster's contracts with Airbus are a significant bonus in that regard. Dubai's 'global transport hub' strategy is a perfect match with Airbus' hub-and-spoke vision for the future of air travel, and the emirate has bet US$19bn that they have got it right. With 45 A380s on order, Dubai has gone a long way towards helping Airbus' ambitious super-jumbo break even; in return, Airbus has been talking of setting up an aircraft maintenance centre in the Jebel Ali Airport City that, when finished, will be the centrepiece of Dubai's hub vision. Under a long-term contract with the Airbus, Doncasters is providing core components for the A380's brakes and engines. With that kind of know-how, the company is an ideal partner in the development of Dubai's aerospace industry.

Unsurprisingly, the military contracts have US politicians all agog. American opinions towards the UAE have been poisoned by allegations that the country has been involved in terrorism. True, the UAE was one of the few countries to recognise the Taliban government in Afghanistan during the 1990s - the continuation of a US-encouraged policy to support the mujaheddin against the Soviet Union in the 1980s. And in 2004, George Tenet, former CIA chief, told the 9/11 Commission(pdf) that the organisation had declined to order a missile strike on a hunting camp south of Kandahar due to fears that a high-ranking Emirati official or member of the royal family might be present. "Clarke told us", the Commission wrote, that "the strike was called off after consultations with Director Tenet because the intelligence was dubious, and it seemed to Clarke as if the CIA was presenting an option to attack America's best counterterrorism ally in the Gulf" (9/11 Commission report, at page 138). Not that the story is told that way these days: 'Dubai officials, Osama cozy before 9/11, CIA says", reads one headline; "UAE royals, bin Laden's saviours" reads another.

But underneath the emotive 'anti-terrorism' saw is a more fundamental American concern: maintaining the country's technological edge. The US has long been loth to share high technologies with its development partners, regardless of how much money they put up for the R&D programmes. Despite ploughing US$1.3bn into the development of advanced radar and electronic war systems for the US F-22 Raptor, currently under development, the US has refused to share the source code for the systems with the UAE, which has the systems installed on the fleet of Block 60 F-16s currently being delivered.

So far as the Block 60s are concerned, the decision may be justifiable on the grounds that the UAE might not abide by undertakings not to pass on the technology - after all, howitzers bought by the UAE from the Swiss in 2004 mysteriously ended up in Morocco, despite clear undertakings that they would not pass them on to that country. But American possessiveness over its technology is not all that discriminating: the United Kingdom has been engaged in an ongoing scrap with the US over technology tied up in the Joint Strike Fighter project. The UK has invested US$2bn in R&D for the plane, and has committed to buy 150 of them once they reach production (Doncasters is also involved). In March, the UK threatened to pull out of the project if the Pentagon continued to refuse to share technologies that would allow the British to adapt the aircraft to their own requirements. Meanwhile, the other five project members - Norway, Italy, Turkey, Denmark and the Netherlands - have been planning a common negotiating strategy to persuade the US to reveal more of the technology involved in the JSF.

After Dubai's humiliating cllimbdown over P&O's American port management contracts, the emirate has little desire to be caught out again. While business leaders have expressed their shock and political leaders are reputed to be furious, they have been doing all they can to persuade US politicians not to block the Doncaster deal. Sheikha Lubna al Qassimi, the economy and planning minister and the UAE's first female cabinet member, went to Washington DC in March to launch a charm offensive supporting the deal.She has her work cut out for her.